Sunday, July 17, 2011

Miss Moneypenny's budget system that really works

I was talking to Miss Know-It-All this morning and she said that I really need to discuss my budget system.  I was going to wait on that.  I worry that the "B" word will scare everyone off, but she is right because it is the base on which I build my life.  So, here goes.

When it finally occurred to me that it was me and only me in charge of my money, I panicked and did a little denial for a while.  I then did a lot of research on budgets.  I'm here to tell you that for every blade of grass in your yard, there is a different budgeting system.  No wonder we fear budgets.  Who wants to use spreadsheets, graphs, envelopes, etc. when a simple three column ledger works beautifully?

The first step is the scariest, I promise.  Sit down with your checkbook, credit card statements and pay stubs and figure exactly where you are.  How much is coming in, how much needs to go out, how much is really going out and how much debt there is.  The debt issue will be covered in a future post.  Right now I just want you to get an idea of how things look.  This isn't easy, I know.  I carried around a small notebook for a couple of months to figure out where the money was going.  It is amazing how I can just blow through it.

When you are ready and this will take some time, go buy a simple three column ledger.  My whole financial life is in mine and I'm on my second one since 2005.  Obviously, with my 32 hour Library job and small paycheck for doing the bookkeeping for my son's plumbing business, I don't earn the big bucks.  But Kathy Spencer of "How to Shop for Free" is doing nicely on $45,000 and she has a husband and four kids, one of which is in college. It is how much you don't spend that is important.  But first, you gotta find out what you have to work with.

The first page of my ledger is used to record all incoming money, no matter how small.  I write the date, where it came from, how many hours worked and the amount.  This is just for my information.

The second section is the part I use the most.  This is my monthly spending.  I use those little page tabs and I have a page for my mortgage, a page for utilities, groceries, Costco-Target-Petsmart, gas, recreation, clothing, beauty upkeep and miscellaneous.  Each page is titled, with a date column on the left, and an "in" column and "out" column and the balance column on the right.  This is my personal monthly spending and it sometimes changes.  It will always be a work in progress.  Yours will most likely not even resemble mine.

You will use the information you gathered to fund these categories.  I budget $80 a month for gas.  You might need more, or maybe less.  After a number of years, I've found I do well on $50 a week for groceries.  I usually have some leftover but you get the idea.  If it is a lean month, there might have to be some juggling done.  No problem because I've been paying attention to my very first page which indicates what my paycheck will look like with that number of hours worked.  You gotta get used to thinking ahead.

Once a week, I go through my receipts and debit slips. Then I deduct the amount spent from each category and billpay any credit card use. Credit card companies hate me.

The third section is for occasional expenses such as medical, vet bills, vacations, home maintenance, Christmas, car upkeep & insurance, etc.  I have a separate page for each of these, also.  This is the "don't worry" part of your budget because you have the money for when your washing machine breaks down or you need new tires for your car.  This takes time to build up and only you know how much you can put in each category every month.  I have only had this fully funded twice in six years.  Something always comes up, but I've got the money to cover it.

The last section is my savings.  Again, you will have to decide how much to save every month.  I actually do pay myself first.  I used to have a lot of my savings in 12 laddered CDs.  That worked well when interest rates were 5%, but those days are long gone, so you need to look around.  Credit Unions seem to be offering a pretty decent deal right now.  I do not spend my savings.  Period.

I know that this is a lot of information to take in.  It really is simple, it is the follow through that is hard but we are adults now.  We work hard for our money and we need to stretch it until it squeaks, as Mom used to say.

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